The Dhandho Investor: The Low-Risk Value Method to High Returns

by Mohnish Pabrai

The pivotal deal for the fledgling company in 1980 was a deal with IBM to deliver MS-DOS for the personal computer (PC) that IBM planned to introduce. There was just one problem: Microsoft did not have an operating system suitable for the PC to sell to IBM. That did not stop Microsoft. They convinced IBM that Microsoft had an operating system under development and they could deliver within IBM’s timeframes.12 It was a lie. Microsoft then went out and bought all rights to Quick and Dirty Operating System (QDOS) from a tiny outfit named Seattle Computer for $50,000. QDOS, modified by Microsoft, became MS-DOS and IBM-DOS.13 The flagship product that allowed Microsoft to scale exponentially wasn’t developed in-house. It was lifted from Seattle Computer. It didn’t stop there. In 1981, Gates visited Apple and got an early peek at Apple’s Macintosh mockup as well as two revolutionary advances Apple had incorporated—the graphical user interface (GUI) and the mouse. Gates was convinced that the mouse and GUI were part of the future of personal computing. In 1983, Microsoft engineers had figured out how to make the mouse work through a serial port. Another fundamental innovation was simply lifted from a competitor and scaled exponentially.14 Microsoft had now developed competency in language compilers (like BASIC) and operating systems. It had no competency or expertise in applications and noted that VisiCalc (an early spreadsheet) was growing rapidly. Eventually Excel lifted virtua...